Russia launches aid crusade
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July 10, 1998: 11:30 a.m. ET
Yeltsin pumps for Western support ahead of IMF decision on aid package
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NEW YORK (CNNfn) - Russia's upper chamber of parliament gave a ringing endorsement Friday to a government program of economic austerity measures, ahead of an expected weekend decision by the International Monetary Fund on an emergency aid package the Kremlin is counting on to stave off a devaluation of the ruble.
The overwhelming vote of 97 in favor and 4 against, by the Federation Council, came as President Boris Yeltsin phoned Western leaders in a diplomatic dialing spree to curry favor for the new loan package.
Kremlin aides have pegged the estimated value of the package at anywhere from $10 billion to $15 billion, the Wall Street Journal reported Friday. The newspaper, citing the aide, said as much as 40 percent of the loans likely would come from the IMF.
Anatoly Chubais, Russia's top negotiator with the IMF, said the rest of the emergency aid would be furnished by the World Bank and private financial institutions.
In his full-court press of Western leaders, Reuters reported, Yeltsin spoke with German Chancellor Helmut Kohl, French President Jacques Chirac and British Prime Minister Tony Blair. He was expected to speak later in the day with U.S. President Clinton and with IMF director Michel Camdessus.
A Kremlin statement said the leaders discussed the situation on world financial markets and the anti-crisis package. Chubais told the Journal a top IMF negotiator, John Odling-Smee was set to arrive in Moscow Friday and likely would make a decision on a new loan Saturday.
In a further sign of its get-serious approach, the Russian government acknowledged it had given up hope of growth this year and said it would pay off debts before doling out wage arrears to millions of disgruntled Russians, Reuters reported.
"Social tension is growing"
"The situation of financial markets has got worse, treasury bill yields are rising, social tension is also growing," Prime Minister Sergei Kiriyenko told regional leaders in the Federation Council, Russia's upper chamber of parliament.
"We are ready to consider any proposal, but we simply cannot fail to repay t-bills." The Treasury bills spiked to 140 percent Friday amid festering investor fears that the IMF package wouldn't come through and the Russian government would back down on its reforms.
Millions of Russians across the country have not been paid in months, leading to outbreaks of social unrest, including a troublesome strike by coal miners who have, in some cases, blocked railways. Elsewhere power cuts and water shortages have plagued the countryside, leaving seething pockets of discontent.
Already, on Wednesday, the government was forced to cancel auctions of long-term Treasurys after jittery investors clammed up and refused to buy the bonds. When the government issued $1 billion in short-term securities instead, only a quarter of the paper was bought at the exorbitant rate of 113 percent.
Many analysts view Russia's latest economic convulsions as a corollary of the financial crisis that erupted in Asia last summer after the Thai government abandoned its defense of the baht, triggering rampant currency devaluations across the region.
In Russia's case, the economic panic has been compounded by slumping global oil prices, which have cut into the revenues the country generates for its oil and gas exports, its largest source of export income.
Other local idiosyncrasies -- from a notoriously inefficient tax collection system to profligate government spending - have fed the crisis in recent months, scaring off overseas investors alarmed at the mounting liquidity crisis.
Since October, the Russian stock market has lost about two-thirds of its value. To fend off a devaluation of the ruble, a move dreaded by overseas and Russian investors alike, the government has ratcheted interest rates and tapped into its precious foreign currency reserves, which have dwindled from $24 billion last fall to just over $15 billion at the beginning of July.
A pending Duma vote
The government reform program now faces a final reading in the obstreperous lower house of parliament, or Duma, on July 15 and 16. Many deputies there are vehemently opposed to the tax reforms and other revenue generating measures envisaged by the program, but may be prodded into going along with it anyway.
Russian officials were quoted Friday as saying Russia's real economic growth this year will probably be zero. Forecasts are for 0 to 1 percent growth in 1999.
In a further sign that the crisis is far from over, Standard & Poor's rating agency Friday cut the credit ratings of six Russian banks, saying the turmoil in Russia risks sparking a wider economic disruption.
-- from staff and wire reports
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